A Surprising Success Story

To “conserve,” in the truest sense of the word, means to “save.”  But when NCUA takes the extraordinary step to conserve an institution, it’s almost always past the point where it can be saved.

That’s why this success story is so surprising—and so inspiring.

From Humble Beginnings…

Arrowhead Central Credit Union has served as a lifeline for many ethnically diverse residents of San Bernardino and the Inland Empire of California since 1949.  Over six decades, the credit union grew to reach more than 100,000 members and $900 million in assets.  Much of the growth came in the last decade as Arrowhead expanded aggressively into side businesses and took on large indirect loans for recreational vehicles (RVs).

The Plot Thickens

But by 2010, Arrowhead had become grossly over-extended.  It couldn’t sustain a sprawling network of 25 branches.  The $154 million RV loan portfolio had collateral values of only half the outstanding loan balances, and borrowers were rapidly defaulting.  “Modified” loans appeared to be masking true delinquencies.  Four side businesses were dragging Arrowhead further into the red, as well as distracting management from providing efficient member service and managing credit risk.  Net worth was down to 3 percent and falling fast.  The credit union was on pace to lose nearly $4 million.  It was in danger of going under.

It was time for NCUA to move in.

Critics Converge

When NCUA conserved Arrowhead on June 25, 2010, critics claimed we were acting unreasonably.  They demanded Congressional hearings and town hall meetings.  They criticized NCUA in the press.  But, as is so often the case, we couldn’t reveal everything we knew about Arrowhead’s condition; most of the supervision data is confidential, and we didn’t want to create a run on the credit union.  However, from day one, we were dedicated to restoring sound operations and safeguarding members’ hard-earned money.

Tough Decisions

NCUA Region II Director Jane Walters did double duty as Agent for the Conservator of Arrowhead.  Jane contracted with credit union turnaround specialist Kay Woods as Interim CEO.  The new leadership team had to make a series of tough decisions: selling or closing 14 branches, reducing staff by 242 in 2010, charging off $70 million in loans over two years, strengthening underwriting, winding down the four side businesses… None of these decisions were popular.  But they were necessary.  And they were our only chance to save this credit union.

Turning the Page

By June of 2011, Arrowhead was beginning to turn the corner.  The path toward recovery had to be straight and narrow: focus on the core business, control costs, and steadily follow the Net Worth Restoration Plan.  When net worth topped 5 percent, we began searching for a permanent CEO.  Darin Woinarowicz, COO at Kern Schools Federal Credit Union, which was successfully serving another inland area of California, agreed to assume the helm at Arrowhead.

Darin implemented a new Strategic Plan for Arrowhead in 2012-2013.  Among the top goals: Rebuild relationships with select employee groups, and rebrand Arrowhead as member service-oriented.

In the meantime, our top priority was to prepare Arrowhead to emerge from conservatorship.  Working with the select employee groups, we recruited an Advisory Board of members who aspired to become Arrowhead’s new Board of Directors and Supervisory Committee.  The executive team organized a two-day “credit union boot camp” for them and provided monthly training on their fiduciary duties.  These 10 dedicated volunteers are now willing to lead Arrowhead into a new chapter in its history.

…To a New Beginning

After nearly three years in conservatorship, last month the NCUA Board voted to return control of Arrowhead back to its members.  Darin just completed his first meeting with Arrowhead’s new Board on May 23.  They reported net worth over 10.5 percent and membership over 116,000 strong.

Arrowhead is the first credit union to successfully emerge from NCUA conservatorship since 2007.  This historic success story was made possible thanks to the collaborative efforts of NCUA staff, the California Department of Financial Institutions, Arrowhead’s interim and current management teams and staff, the new Board, and members who never wavered in their support of the credit union.

Together we pulled Arrowhead from the brink of insolvency to become a strong credit union providing essential services for its community.  We look forward to repeating this success story again and again in coming years.